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Singapore's allure as asset management hub set to continue

Singapore's allure as asset management hub set to continue

Source: Business Times
Article Date: 01 Oct 2020
Author: Vivien Shiao

Observers say that the industry's outlook remains bright despite pandemic woes.

Singapore is unlikely to lose its shine as an asset management hub even in the midst of the Covid-19 pandemic, as developments such as the Variable Capital Companies (VCC) framework and the Republic's reputational strength continue to draw attention from asset managers around the world, said industry watchers.

This comes as total assets managed by Singapore-based asset managers surged 15.7 per cent to hit S$4 trillion in 2019, up from 5.4 per cent previously, according to the annual Singapore Asset Management Survey released by the Monetary Authority of Singapore (MAS) on Wednesday.

This is driven by strong market performance and net inflows from investors, in line with the global trend where assets under management (AUM) went up 15 per cent to US$89 trillion last year.

In Singapore, there was a net increase of 108 registered and licensed asset managers last year, bringing the total to 895.

Growth in AUM came from both the traditional and alternative assets, with the traditional sector seeing a strong rebound in 2019, registering 25 per cent growth.

The alternatives sector saw continued growth of 12 per cent in 2019 to S$721 billion, led by private equity and venture capital managers, with combined AUM from both these asset classes growing 16 per cent to S$254 billion. This comes on the back of MAS's efforts to develop Singapore as an Asia-Pacific enterprise financing and infrastructure hub.

Industry watchers told The Business Times that the VCC framework, a new flexible corporate structure designed for investment funds launched on January 15, 2020, had a part to play.

Brian Thung, Asean Financial Services Leader, EY noted: "VCC brings Singapore to the forefront in relation to facilitating the domiciliation of investment funds across traditional and alternative fund vehicles."

As at mid-September 2020, more than 120 VCCs have been incorporated within the initial eight months of the launch of the framework, according to MAS.

Jason Nelms, partner in law firm Morrison & Foerster, said that the new VCC has been "very helpful" in drawing positive attention to Singapore's regulatory environment for funds.

Other developments such as the introduction of the Venture Capital Fund Management (VCFM) licensing scheme have also been important in attracting new managers to establish a fund management business here, he noted.

"We have seen a number of managers who have chosen Singapore for their management operations due in large part to how straight-forward the VCFM and related compliance requirements are as compared to other jurisdictions," he said.

Despite the interest in VCC, he believes that Singapore's limited partnership entity type will continue to be the standard entity type for setting up private equity and venture capital funds in Singapore.

This comes as setting up such funds as limited partnerships has become the "global standard", and that the VCC entity type is more suited to open-end vehicles and less suitable for private equity and venture capital fund entities for technical reasons, said Mr Nelms.

"Several managers I work closely with were attracted to Singapore initially due to positive coverage of the VCC, and ultimately decided to set the fund up in Singapore as a limited partnership instead," he observed. "This illustrates Singapore's broader appeal to the market."

Industry watchers were confident that the outlook of Singapore's asset management industry remains bright, even as the uncertainty from Covid-19 remains.

Joseph Cherian, professor of finance, NUS Business School, said: "Speaking with asset managers in Singapore, apart from the early capital flight due to uncertainties surrounding the pandemic, they all spoke about inflows subsequently and specialised asset class searches and mandates."

He pointed out that asset managers here can capitalise on how Singapore is "not just a bastion of business and political stability", but with a ready pipeline of talent.

"The lack of local talent pool is an old argument that doesn't hold water anymore," he added.

Similarly, EY's Mr Thung noted that the industry is resilient and has not been negatively impacted by the pandemic in a drastic way.

"Our hub status continues to be a beacon to attract good AUM both domestically and overseas... I don't have a crystal ball, but I believe that the growth trajectory remains positive," he said.

This confidence comes in part from findings in an earlier EY report in April, which showed that the majority of global asset and wealth managers are taking steps to automate, embark on digital transformation and changing their approach to their workforce to gear up for the future, on the back of pressures from Covid-19.

"It's really an opportunity for the industry as a whole because the Covid-19 pandemic is indeed an inflection point," he said. Making the necessary changes will equip these asset managers to emerge from the episode stronger, he added.

That being said, Singapore will continue to face challenges in the asset management landscape, especially from abroad.

Morrison & Foerster's Mr Nelms noted that Hong Kong recently introduced new rules related to fund management and taxation, and is looking to amend existing rules to become more competitive.

Meanwhile, the Cayman Islands has also established more robust governance rules in recent years to attract more capital from Europe and other jurisdictions, he said.

Even so, he expects Singapore to improve on its position in the industry by "quickly adapting to changing market needs as it continues to grow in prominence as a leading asset management hub".

"Covid-19 has been a challenge globally, but Singapore's growing attractiveness will continue to provide competitive advantages," said Mr Nelms.

"In recent years, we have seen more and more managers choose to set their funds up in Singapore rather than in offshore jurisdictions, which should create momentum and help entice more and more managers to adopt this approach."

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

 

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